California

TiVo's Loss More Than Doubles as Sales Jump

Revenue rises 49% but the company's reliance on DirecTV for new customers raises alarm.

TiVo Inc. said Thursday that its fiscal second-quarter loss more than doubled as the number of subscribers to its digital video recorder service more than tripled.

The results beat Wall Street's expectations. But analysts expressed alarm that nearly 80% of Tivo's new customers came through satellite-TV operator DirecTV Group Inc., which is expected to offer a competing DVR next year.

TiVo lost $10.8 million, or 13 cents a share, in the quarter, ended July 31, compared with a loss of $4.4 million, or 7 cents a share, a year earlier.

Sales increased 49% to $39.8 million.

Analysts polled by Thomson First Call had expected a loss of 24 cents a share.

The news did not sit well with investors. Tivo shares fell as much as 9.4%, or 45 cents, to $4.35 in after-hours trading, after rising 3.9%, or 18 cents, to $4.80 in regular Nasdaq trading. The company's results were announced after the markets closed.

Alviso, Calif.-based TiVo, whose name is synonymous with DVRs that allow television viewers to record programs on hard drives, blamed the wider loss on increased promotional spending.

But what caught research analyst Alan Bezoza's eye was the continued reliance on DirecTV. "They have so much exposure to DirecTV that it's a negative," said Bezoza of Friedman, Billings, Ramsey Group.

DirecTV's agreement to offer Tivo DVRs does not expire until February 2007, and the satellite-TV operator has not formally announced it will offer an alternative to its customers.

But TiVo co-founder and Chairman Mike Ramsay acknowledged widespread speculation that DirecTV would soon offer a competing DVR from Britain's NDS Group Ltd. Both DirecTV and NDS are controlled by media giant News Corp., run by Rupert Murdoch.

Ramsay said he had experience in David-and-Goliath battles. "Remember, we competed with Microsoft a few years back," he said, referring to Microsoft Corp.'s UltimateTV, a DVR the software giant discontinued in 2002 after disappointing sales. "And we beat them."

Among Tivo's most potent weapons, said Chief Financial Officer David Courtney, are its "passionate consumer following and the strength of an incumbent installed base."

However, TiVo has failed to make any significant inroads into the cable-TV market. Major cable operators began offering their customers DVRs last year, but almost none of them are from TiVo.

"Cable is where a huge amount of growth is coming from," Bezoza said. "And TiVo has scored zero there."